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Monthly Archives: July 2010

≈ Comments Off on High Courts can’t interfere in property/rent rows: SC

The Supreme Court had held that High Court cannot interfere in civil disputes like eviction of tenants or property rows as such issues are to be dealt by civil courts.

Citing its earlier rulings, the apex court said the writ jurisdiction enjoyed by the High Courts under Article 226 to pass any directive to the authorities for enforcing the fundamental right of a citizen cannot be used in private disputes unless there is an statutory connotation to it.

“In some cases, High Courts, in a routine manner, entertain petition under Article 227 over such disputes and such petitions are treated as writ petitions.

“We would like to make it clear that in view of the law referred to above in cases of property rights and in disputes between private individuals, writ court should not interfere unless there is any infraction of statute or it can be shown, that a private individual is acting in collusion with a statutory authority,” a Bench of Justices G S Singhivi and A K Ganguly said in a judgement.

The apex court passed the judgement while dismissing the appeal filed by Shalini Shyam Shetty, a tenant challenging the eviction direction passed by the lower court and upheld by the Bombay High Court.

Yet another piece of the real estate market appears to be getting back in shape. After realtors focused on the affordable housing space, where demand remained reasonable when market prices crashed two years ago, they are now launching luxury homes as the segment is witnessing early signals of an upswing in demand.

Sensing this turnaround, a host of property developers including DLF, Unitech, Emaar MGF and Ansal API are gearing up to launch plush housing projects, where a single unit costs upwards of 2 crore, over the next six months.

“Now that the job market is looking up, consumers are once again regaining the confidence to put money in swank projects,” said Shravan Gupta, executive vice chairman and managing director at Emaar MGF.

The Delhi-based property developer plans to launch around 2,000 upscale units over the next six months across cities such as Gurgaon, Hyderabad, Punjab, Bangalore and Kerala.

Unitech, the country’s second-largest builder, who had focused on affordable housing space, too plans to launch a few luxury projects to target high-end home buyers. Unitech spokeswoman said it has a few projects in the works in the luxury housing segment located in the national capital region.

Luxury homes are targeted towards high net worth individuals and the price range of such apartments varies from city to city. While in metros such as Mumbai and Delhi, the cost of such high-end houses can begin from 2 crore, in tier-II cities they can be around 1 crore and above. Builders in this category focus on fully-embellished apartments , which can be further customised to the individual buyer’s preferences.

Pranav Ansal-led Ansal API plans to launch a mix of high-end villas and apartments in Lucknow and NCR by the end of 2010. While they are coming up with a golf course property in the price range of 3-7 crore in Lucknow, in Gurgaon they are launching villas in Esencia township in the bracket of 6-7 crore.

Anil Kumar, deputy MD & CEO at Ansal API said the rising aspiration levels of consumers in India is the major factor propelling growth in the luxury realty segment. “More than expensive and stylish interiors and fittings, today consumers are looking for more environmental-friendly features which are becoming luxuries for a better quality life and they are ready to pay for them,” he said.

India’s biggest realtor DLF recently sold super luxury flats in the price range worth 4 crore each in central Delhi. Besides , it also launched at least three highend projects in Gurgaon including Park Place and Golf Links, which too were reportedly sold off within days of launch.

Anurag Mathur, MD at real estate services firm Cushman & Wakefield, said: “Prices of luxury homes in general has touched the peak level of 2007, while in some places such as Gurgaon and Mumbai, they have exceeded the 2007-prices .” As per estimates of Cushman & Wakefield, over 8,000 residential units in the luxury segment are expected to be ready by 2013. The total supply expected this year will be 85,000 units of which about 14% will be luxury projects.

Non-performing assets (NPAs) in commercial banks have gone up to an alarming level, most of it caused due to restructuring of loans to the real estate and textile sectors. The government may further tighten financing to real estate businesses to avoid the possibility of an asset bubble.

Speaking on the sidelines of a meeting of heads of Regional Rural Banks with the finance minister in the Capital, banking secretary R Gopalan said NPAs in the restructured loan category of the real estate sector had gone up. He said the government may not go in for any more restructuring of loans as the past concessions were one-time measures and granted to beat the slowdown.

The tough stand of the government, if coupled with lending rate hikes by RBI which is to be announced on Tuesday, may make survival of many builders and developers difficult given the fact that they had pumped in hundreds of crores into the sector and were holding on to their stocks for lack of customers.

RBI has indicated that it will further tighten its monetary policy as double digit inflation is a major concern for an overheating economy at this juncture. Even the PM’s economic advisory council in its first quarter review last week urged the central bank to intervene with tighter monetary policy to contain inflation.

The outstanding credit of banks, both public and private, to commercial real estate at the end of March 2009 was Rs 91,500 crore against Rs 63,000 crore till March 2008. This was an increase of 45% over the previous year and more than double the amount of Rs 44,000 crore exposure of these banks during boom period of 2007.

It would be preferrable to wait till the credit policy. No doubt players like Unitech, DLF and HDIL are seeing good amount of momentum even on the core business. With interest rates likely to go up further, probably we could prefer to wait and watch for all the realty stocks and then take a call ahead.

Although media reports, vis-a-vis real estate IPOs have not been positive, yet, offerings have been subscribed and new ones are in the pipeline,” says realtor Bharat Malik. The Indian investment market will not blindly put money in real estate IPOs anymore and this is because there are issues that go beyond market sentiment, says Pankaj Kapoor, CEO of real estate research and analysis firm, Liases Foras. “Valuations have been a problem for real estate IPOs in the past and we have seen some companies whose IPOs have been delayed, offering valuation discount to pre-money. Investing in a real estate IPO requires as much due diligence, as when it comes to buying real estate. This applies equally, to the investor and also the company which makes the IPO offering,” he explains.

Nayan Bheda, MD of the Neptune Group, says that things have improved, over the past few months. “Investors have returned and the market sentiment has improved. I feel that IPOs will do well in the coming days,” he says. Taking the example of Godrej Properties Ltd, the first developer to sell shares in an IPO in India after a gap of almost two years, he says, “It raised Rs 4.69 billion last December and the stock has gained about 3%, since its trading debut.” Raheja Universal has also announced plans for an IPO and Bheda says that this trend is an encouraging one.

An IPO becomes successful when a company provides sustainable returns to the investor and ample liquidity in the stock, says Abhinandan Lodha, deputy MD, Lodha Group. “The success of upcoming IPOs will depend on their timing and the prevalent market scenario,” he says. On the issue of some companies coming up with IPOs that have been delayed, offering valuation discount to pre-money, Lodha points out that for each company, the value drivers could be different. “The financial markets have changed and valuations of real estate are still at a nascent stage. This may be one of the factors leading to shifting valuations,” he suggests.

Companies have realised that with falling retail interest and the flight of foreign investors, it will be difficult to gain closure, unless valuations are really attractive, adds Amit Goenka, national director – capital transactions, Knight Frank India. “The onus lies on companies, to infuse confidence in retail clients, through their merchant bankers. Unless companies offer pre-money value discounts, there would be little interest, compared to the risk weightage of real estate stocks,” he maintains.

CA Sumeet Mehta, MD and CEO of Paradigm Advisors, says that investors would prefer to invest in realty firms’ IPOs that offer a mix of justifiable valuations and a strong cash-flow, instead of merely relying on land bank valuations. “In the present scenario, the focus appears to be shifting from land banks and valuation reports, to the execution skills of the developer and demand and price sustainability in the micro markets where the developers are executing their projects,” points out Mehta.

According to Goenka, market experts have been talking about IPO aspirants ‘trying to avoid their predecessors’ pitfalls and keep their valuations attractive’ and this will be a positive move, he says. “The market’s reaction to IPOs in the past, has underlined one simple fact: that an IPO is a way to raise growth capital and enhance capital base,” he says.

While cutting down on valuations and raising capital may augur well for developers, whether it would augur well for investors will depend upon four factors, says Mehta. “Firstly, it will depend on whether the issue’s proceeds are utilised to build land banks, or complete projects, or start new projects. The second factor will be the execution capability and commitment of the developer. The next factor will be the sustainability of property prices at current levels, in the wake of what appears to be an overheated property market. Lastly, it will depend on demand and absorption, in the wake of slowing down of demand due to rise in prices,” Mehta elaborates.

IPOs are a good option for retail investors, aiming to benefit from India’s economic growth, says Vishal Ratanghayra, director, asset management company, Signature India. “Companies going in for listing should go by current valuations and future appreciation, to allow share holders to benefit in the mid-long term. The stock markets largely react to sentiments and over the next few years, fundamentals as well as sentiments are expected to be positive. Nevertheless, there needs to be prudence at at the investor’s level, before investing,” he maintains.

Real estate IPOs have had a chequered history, admits Kapoor. The future of real estate IPOs will depend upon their respective issue price band and whether investors perceive it as being fair, he concludes.

Ajay Piramal Group promoted real estate fund Indiareit has picked up 24% stake in Flagship Infrastructure that is developing a township project and special economic zone (SEZ) project in Hinjewadi near Pune, a person familiar with the development said.

Indiareit Offshore Fund had subscribed to 4,000 warrants of the entity and is now converting it into equity that will give it a 24% stake. “The warrants are being converted at Rs 55,110 per share translating into a deal worth `22 crore as per an application made to foreign investment promotion board (FIPB),” said the person on condition of anonymity. FIPB is the nodal body that clears foreign investment proposals in the country.

Flagship Infrastructure, a venture of the privately-held Paranjape Schemes (Construction), was established in 2005 to develop township and SEZ project in Hinjewadi near Pune. It is developing Blue Ridge, a 138-acre township project.
Indiareit Offshore Fund is one of the three funds run by Indiareit Fund Advisors. Its other investments include a commercial complex in central Mumbai.

Indiareit is picking 24% stake in Flagship Infrastructure that is developing a township project and special economic zone project in Hinjewadi near Pune, a person familiar with the development said.

Indiareit Offshore Fund had subscribed to 4,000 warrants of the entity and is now converting it into equity that would give it 24% stake. “The warrants are being converted at Rs 55,110 per share translating into a deal worth Rs 22 crore as per an application made to foreign investment promotion board (FIPB),” said the person on condition of anonymity.

FIPB is the nodal body clearing foreign investment proposals in the country. An email sent to a senior executive of Flagship Infrastructure did not elicit any response. Flagship Infrastructure, a venture of the privately-held Paranjape Schemes (Construction) Ltd, was established in 2005 to develop township and SEZ project in Hinjewadi near Pune. It is developing a 138-acre township project Blue Ridge.

Indiareit Offshore Fund is one of the three funds run by Indiareit Fund Advisors, which manages assets worth around Rs 1,900 crore. Among other investments of Indiareit Offshore Fund includes a commercial complex in Kurla (Mumbai).

The RBI’s policy, of moving the banking system away from BPLR to the ‘base rate’ system, is expected to have a positive impact on the overall debt markets, in terms of transparency and competitiveness. Since current home loan rates are already around the 8-9% mark, which is close to the base rates announced by banks, the immediate impact for new loans will be negligible.

However, it is recommended that home mortgage borrowers on a floating rate system, move to the base rate system on their current outstanding obligations, especially if the loan is relatively new. The BPLRs were as high as 16-17% and older floating rate loans were inching towards 12-13%. Now, consumers will be able to choose their mortgage banks based on their competitiveness, rather than an arbitrary and opaque BPLR system. This should bring more consumers to the market, thereby pushing up volumes in residential sales.

The system will also do away with the artificial home loan price wars, based on an initial low fixed rate and a high variable floating rate. The credit merit of each consumer will be the only consideration on the rate movement, apart from larger debt market systematic risk. Several banks are yet to fully absorb the impact of the base rate system on their lending portfolio and new applications.

Consequently, not all banks have declared their base rates. Within real estate, the base rate system could bring renewed consumer interest across all markets, since new loans will have more predictable EMIs and old loans can get restructured, freeing up cash for newer property purchases.

With the equity market holding up, some of the real estate companies are revisiting their share-offering plans, even at a price lower than what they had initially hoped for. Many of these companies already have Sebi’s approval to launch their initial public offerings (IPOs), but deferred their plans in the face of unfavourable market conditions.

“The secondary market is witnessing some euphoria, and sectors like telecom and real estate are being rerated,” said said a top official at a foreign investment bank involved in one of these deals.

“Also, volatility has reduced, which is good for IPO-bound companies. We are likely to see some of the bigger real estate players come back to the market again,” he said, but also cautioned that only a few companies would be in a position to take advantage of this window of opportunity.

Bankers feel where the issuer and prospective investors differ on the valuation by 5-10%, deals may still get done.

“Where there is a huge value disconnect, the deal may not get done,” a banker said. At least 50% of the real estate companies will have to get back to their drawing board and refile the prospectus for a small-sized offering, he added.

Real estate has started picking up today and it has also been one of the better performing sectors since this market’s uptrend. So it is pretty much consistent as opposed with the build out because you are seeing rallies and stock getting demand when it fell. This is a rally that is tending to favour real estate as well now.

Real estate was pretty down and some of them did offer value buying at certain levels and specifically if one could understand their business model, Unitech 2.45 % and HDIL 7.60 % were leading their so-called revival more because of their fundamentals gaining to be in better shape but today might be seen as overall growing interest in that, possibly there is an agreement of sorts, a consensus building that they would probably stop chasing prices. Look at volumes and come September when repayments and all this kind of debt restructuring comes into picture, they would need healthier balance sheets with more liquidity. So they would probably have agreed to tone down pricing, which was a big barrier for the demand side to kind of really pick up, so that’s bound to happen and as we see that go more intensely. Probably real estate would become a bit more promising than what it has been for sometime.